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Effective Compensation
Negotiations
for Hiring Executives
by R. Gaines Baty
OVERVIEW
Most executives
will agree that identifying, acquiring, developing and keeping the best
talent possible is one of the most important aspects of attaining
success in their respective businesses. Peter Drucker said “Of all the
decisions an executive makes, none are as important as those about
people because they determine the performance capacity of the
organization.” Jim Collins, in Good to GREAT, espouses that
having the right people ‘on the bus and in the right seats’ is a major
key to success. Simple and easy, right?
If we agree that
our collective goals are to create great organizations, and to reap the
associated benefits, then what role do hiring negotiations play?
The goal is to
acquire the best talent at the lowest price possible. Or is it?
This essay will
explore recruiting/compensation/negotiation issues related to attracting
an important, impact-level new executive into the fold.
VARIABLES
Of course, numerous
complicating factors enter the picture in recruiting and negotiation,
not to mention retention:
- Growing markets, declining markets
- Competitive demand for same talent
- Candidate expectations
- Budget constraints
- Danger of upsetting internal equity
- Candidate employment status
- Attempting to "fit a size 11 foot into a size 9 shoe"
It’s always
important to define the objectives of the role, the ideal capabilities
of the individual, and to ‘ballpark’ a compensation level. However, the
market for available talent does not always cooperate. Sometimes the
right talent costs more. Assuming that you’ve found an attractive
candidate with compensation expectations above anticipated range, should
you stretch, or pursue a less costly (and less qualified?) person to
meet budget constraints? Tough issues.
How can you attract
the highly-regarded and frequently highly-paid recruits that can truly
make a significant impact on the results of your organization?
PERILS
Of course,
overpaying someone can cause internal equity, morale and budget issues.
Future pay raises are harder to justify. Another less apparent problem
is that a higher-paid person is ‘in the spotlight’…higher expectations
are frequently imposed. Therefore, risk of failure is elevated. An
unnamed former EDS VP feels strongly that “overpaying a person can truly
hurt that person in the long term, because it can set a ‘higher bar’,
making success more difficult, as well as subsequent transition to a
more appropriate role.”
In contrast, the
risk of insulting the desired person with a “lowball” offer is great
(even if s/he is compelled to accept less for personal reasons).
Further, as the market heats up, a firm must ensure that its offer is at
least competitive with other offers the candidate may have or
anticipate. It’s a tragedy to lose a potential ‘star’ because of a few
dollars, an invalid assumption or simple misunderstanding, or a tactical
error in negotiation. And surely the worst case scenario is to lose a
great employee, who is recruited away by a competitor, at least partly
because s/he was underpaid (and perceived to be under-appreciated), per
the market.
Cindy Bush, an
Executive Recruiter at R. Gaines Baty Associates, Inc. in Dallas,
described such an event…“the candidate was extremely well-suited for the
role, and ultimately accepted the job in spite of expressed
disappointment in what he felt was a “low offer.” Since he was
‘between jobs’, accepting was the best option at the time. However, he
was later recruited away to greener pastures, much to the dismay of the
original organization.” Was his underlying resentment about being
‘held hostage’ a factor in his subsequent defection to the competitive
company?
Negotiating
compensation that is competitive and appropriate, yet attractive,
fosters a level of satisfaction and loyalty, hopefully equating to good
performance and retention. But how are such issues addressed
successfully?
SUCCESSFUL STRATEGIES
Ensure that motivations are compatible.
Robert Heard, CEO and founder of startup, VC-backed software company
Credant, adheres to the philosophy that compensation is a secondary
issue. “I must first believe that the potential new executive ‘gets
it’… that s/he understands and buys into the vision. Without this,
compensation discussions are unsustainable.”
Ask the tough questions, but not too early. John Gorman, former President of Headstrong, a Fairfax, VA-based
systems integrator, and former Coopers & Lybrand Partner, feels that
“many executives are hesitant to challenge a person’s demands, and hence
will tend to overpay.” It’s important to understand ballpark
compensation history and exact current compensation breakdown (this
helps to minimize exaggeration), as well as the candidate’s
expectations. Will s/he be willing to find a reasonable compromise for
the right opportunity, or is the agenda to go with the highest bidder?
An intermediary can help to gain these insights. Mr. Heard attempts to
“balance a candidate’s desired compensation with the perceived market
price and what the company can afford.” He also attempts to
“‘pre-qualify that expectations are aligned early in the process.”
Make negotiations a win-win process.
While most negotiations inevitably begin with current
salary/compensation totals, a candidate should not be held hostage due
to previous misfortunes or current employment status. Likewise, no
candidate should try to ‘gouge’ a potential employer. Flexibility and
compromise is almost always necessary on both sides. “Additional
leverage points, such as accelerators, additional performance bonuses
and/or commissions, perks, etc. can help to create a mutually acceptable
agreement,” says Mr.Gorman. However, our former EDS’er points out that with the Sarbanes-Oxley legislation, “stock options
are more difficult to include in a compensation package these days.”
Streamline the process.
Excessive delays and/or indecision can be very discouraging and
effectively kill a candidate’s ‘emotional momentum’ and enthusiasm for
your opportunity. Most executives appreciate and respect a crisp, clean
process, and tend to equate a company’s hiring process with its normal
course of business…good or bad. Competitive organizations may also be
pushing for an acceptance. The old adage that “time kills all deals”
certainly applies in recruiting. Ensure that the person knows s/he is
wanted, move as quickly as possible, and always try to have suitable
backups.
Utilize the search process as a ‘market study’.
Frequently a position upgrade or a slight restructuring of an
organization is in order to align the demands of the business with
available capabilities. Accommodating a ‘great athlete’ can frequently
bring a much greater return on investment. The former EDS’er, quoted above, states “a good executive search firm can significantly
enhance the process. The search itself will reveal competitive
compensation data, and the recruiter, as an intermediary, can advise and
sell both ways, helping to arrive at a better, financially reasonable
solution.”
Identify and address any concerns or issues
the candidate may have. Some issues are easy to solve, some not. These
issues can be personal, professional, or there may be a competitive
suitor. The hidden or unspoken objection is the most paralyzing. Ask
the questions, look at his or her perspective, and try to solve the
problem in a creative manner. Your credible recruiter can be invaluable
in this regard.
“Sell
the total package, not just the compensation…sell the vision,
the opportunity, the company, the longer term. Many times, the money is
just about keeping score.” emphasizes Mr. Heard. Reinforce and amplify
the selling points your executive search partner has already conveyed.
Certainly every potential total compensation upside scenario should be
emphasized. However, where some fall short is in promoting the most
important aspects of this important position: the culture, the
management team, the career potential…the future, longer term financial
opportunities, the excitement, etc.
CONCLUSION
Why should someone
quit a good job, or decline another good offer, to come to work for
you? If the vision is shared, a great career opportunity is presented
(and ”sold”), and a ‘win-win’ financial structure is established and
agreed to, you stand a great chance of attracting this great person to
help build your great organization. Then deliver what is promised.
R. Gaines Baty is President
of R. Gaines Baty Associates, Inc.
(est. 1977), a
Dallas-based retained executive
search firm. Mr. Baty,
who started his career with IBM Corp., is
formerly a two-term President of both the Society of Executive
Recruiting Consultants (SERC) and the
Dallas Independent Recruiters Group (IRG), and is a well-known
author, trainer and practitioner in executive
team building, executive evaluation, executive search and
career management issues. Mr.
Baty can be reached at gbaty@rgba.com. |
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